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25 February 2011

The Four Horsemen and government finances

Don’t be surprised if the provincial government issues a statement in the near future trumpeting an accrual surplus of several hundred millions.

Sure Tom Marshall isn’t ready to acknowledge what is going on, but it’s pretty hard to avoid making tons of money when those pre-Danny Williams oil royalty regimes meet Brent crude prices that are soaring to more than US$105 million based on Muammar Khaddafi’s willingness to slaughter thousands of Libyans in order to stay in power.

Oil prices and production levels are actually at the level where the Conservatives in Newfoundland and Labrador might produce a cash account surplus as well for the first time in a couple of years. That’s a good thing if only because it means the public debt won’t increase to record levels as it has under the Conservatives since 2003.

The question one must ask as we get closer to a provincial budget for the new fiscal year is how much longer the provincial Conservatives will continue to base public spending on windfalls due to war, famine, pestilence and death?

The Conservative banshees will likely start their usual screeching in the comments section at this point but the facts are plain in anyone’s face. The Conservatives’ financial “miracle” has resulted not one teensy bit from anything they have done. The enormous cash flow over the past five years resulted to one extent or another from political instability, economic crisis and all manner of calamities around the globe that drove oil prices to unprecedented heights. Run those oil prices through the royalty regimes delivered before the Conservatives took power in 2003 and you have more money than the spendthrift Conservatives could actually spend.

Since 2003, the provincial Conservatives, led by first Danny Williams and now Kathy Dunderdale, have deliberately avoided sound fiscal policies. Finance minister Tom Marshall and his colleagues have refused to create a sovereign wealth fund or to restrain public spending. They have, in fact, willingly boosted spending to levels even they’ve acknowledged are unsustainable.

Gross public debt remains at historic levels and, if Marshall is to be believed, there is little willingness around the cabinet table to take the sort of measures any prudent government would be doing in the face of dwindling oil production. In other words, there’ll be no investment fund of the type found in other, responsibly run places, at least, not until Tom takes a hike to enjoy his fat pension on a Bermuda beach somewhere.

Now none of this actually comes as a surprise to the Conservatives. Premier Kathy Dunderdale is aware enough of declining oil production – and hence revenue – but that seems to be only when she is faced with a reporter’s question about spending public on something - like municipal bus services – that she obviously isn’t keen on.

But on things she wants, like Muskrat Falls, there is evidently no limit to Dunderdale’s willingness to spend other people’s money by increasing public debt and doubling electricity rates in the province.

In a few weeks’ time, Newfoundlanders and Labradorians will find out what Kathy Dunderdale and her colleagues plan to do with public money for the foreseeable future. Let’s see if Kathy Dunderdale defines her premiership by changing the pattern of financial imprudence she and her colleagues have maintained until now.

Odds are against any change to fiscal responsibility by the provincial government. For starters we are in a pre-election period. And when that is done, we will still have the unresolved Conservative leadership. No one will be willing to take any steps to turn off the money spigots when votes are at stake.

Just think of political expediency in a patronage-riddled political culture as the fifth horseman.